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Commercial Rule of Law

CECC 2002 Annual Report

Impact of the WTO on Development of the Rule of Law

On December 11, 2001, China formally became a member of the WTO. In doing so, China agreed to abide by the rules governing trade relations among most of the nations of the world. U.S. trade analysts and business leaders expect China's accession to the WTO to provide greater opportunities and a more stable economic environment for American businesses operating there. More important, although some believe that increased trade may serve to strengthen the existing power structure in China, many others believe that the changes that the Chinese government must make to implement its WTO commitments will help foster the broader development of the rule of law.

In joining the WTO, China has demonstrated an unprecedented willingness to make fundamental changes to its system of governance in response to the dictates of an international body. This decision itself is an important step in moving toward a system of government based on the rule of law. As U.S. Undersecretary of Commerce for International Trade Grant Aldonas stated to the Commission, "Observance of the law in any society has to become a habit."(222) Reform-minded elements within the Chinese leadership have been eager to demonstrate China's commitment to compliance and the institutional changes that are expected to result from accession.(223) Early in 2002, Long Yongtu, Vice Minister of Foreign Trade and Economic Cooperation, announced that WTO accession will help China build "a stable, transparent and predictable law system."(224)

The WTO agreements and China's accession documents contain many core elements of the rule of law. The WTO imposes transparency on its members by requiring that all laws, regulations, judicial decisions, and administrative rulings relating to trade be published promptly.(225) WTO agreements also require that all trade-related measures be administered in a uniform, impartial and reasonable manner,(226) and that those measures not be enforced before they are officially published.(227) Further, WTO members must maintain tribunals or procedures for the prompt, independent review of trade-related administrative actions.(228) WTO members must incorporate these requirements into their own legal systems.

The Chinese leadership has viewed the WTO as a vehicle for promoting economic reforms that were already regarded as desirable but politically difficult to achieve, including reforms that involve the same rule of law elements found in China's WTO commitments. Professor Donald Clarke of the University of Washington Law School told a Commission hearing that "accession is part of a larger strategy of massive and fundamental economic reform."(229) Recognizing the importance of the changes WTO membership would bring to its larger economic reform policies, China began amending and abolishing laws and regulations inconsistent with the WTO before it became a member. The Ministry of Foreign Trade and Economic Cooperation (MOFTEC) reported that 2,300 laws and regulations had been "cleaned up" due to WTO non-compliance as of May 2002, and of these 830 had been abolished.(230) Efforts to undertake reform of China's administrative law regime and its judiciary also began long before China joined the WTO.

Reform of Lawmaking and Rulemaking Processes

In joining the WTO, China has agreed to honor transparency commitments by publishing trade-related measures in an official journal and providing an opportunity for the public to comment on drafts before those measures are implemented.231 The Legislation Law passed in 2000 provides for the possibility of publishing drafts of "important" bills and of seeking opinions from various parties through public hearings, although it does not mandate releasing draft bills to the public at large.(232) Similarly, the State Council's Procedural Rules for Formulating Administrative Regulations require that the State Council gather opinions from relevant government bodies, associations, and citizens, but does not require the release of draft regulations to the public at large.(233)

Some administrative bodies have published regulations and other measures in draft form for public comment; administrative bodies that regularly issue rules and regulations involving trade and investment, such as the China Securities Regulatory Commission, have done so more consistently.(234) Other administrative bodies also have made public a limited number of proposed regulations, including some without obvious connections to trade.(235) Some measures are shared in draft form with a limited Chinese audience, further promoting concerns among foreign investors and trading partners about discrimination and selective transparency. However, Chinese government authorities promulgate most measures in final form without distributing drafts and allowing public comment. This practice demonstrates that, on the whole, Chinese administrative bodies are far from achieving full compliance with China¡¯s transparency commitments.

As expected, progress in implementing WTO rules on transparency varies widely at the provincial and local levels. A large number of laws and regulations at these levels need to be revised or rescinded. China's most commercially advanced provinces and cities lead the rest of the country in these reforms. For example, in 2000, the Shanghai people's government instituted an action plan that included a review of local measures for WTO compatibility. Shanghai also has begun holding open hearings on some draft legislation. In 2002, the Beijing people's government adopted measures that permit publishing draft rules and holding public hearings.(236) Although a few other provinces and municipalities have set up WTO compliance centers and have taken significant steps toward revising laws and rules and improving transparency,(237) many provincial and local governments continue to lack the will or knowledge necessary to embrace the changes that WTO membership requires.

Administrative Law Reform

China lacks comprehensive procedures for making administrative rules and regulations, which leads to inconsistent rulemaking practices among administrative bodies.238 China also lacks adequate methods for challenging administrative actions, either internally or through the courts. Many administrative bodies have no procedures or personnel in place to hear and decide administrative appeals.(239) The Administrative Litigation Law allows citizens to sue government officials in a court of law for violation of their "legitimate rights and interests."(240) However, the law limits the types of actions that can be challenged, and the courts have defined "legitimate rights and interests" narrowly.(241) With the support of the Asia Foundation and U.S. legal scholars, the China Administrative Law Research Group, a group of Chinese legal scholars and government officials, is drafting a new law on administrative procedure that is to be completed by December 2003. Many Chinese and foreign observers hope that the new law, together with reform of all laws and regulations inconsistent with WTO requirements, will bring about a more uniform system of enforcing trade-related measures through administrative appeals and improved mechanisms for judicial review of administrative actions.

Judicial Reform

Many argue that the weakness of China's judiciary poses one of the biggest obstacles to effective judicial review of administrative actions.(242) The most significant development in judicial reform resulting from China's WTO membership has been the establishment of new procedures to handle transnational disputes, whereby foreign entities may have their cases heard before intermediate courts without first appearing before lower level courts.(243) Similar procedures have been established for intellectual property cases. Judges assigned to these cases have begun training in business law, intellectual property, and legal English. For WTO-related cases, these new procedures may lessen the impact of corruption and lack of professional competence, problems that critics find throughout China's judicial ranks.(244)

Some critics argue these new court procedures show that the Chinese government will attempt to limit the impact of WTO accession to the commercial sphere. Others argue that China's commitment to provide independent and impartial judicial review for WTO-related actions may be having a broader impact. For example, in the past year, the Chinese government established the first uniform national examination for new judges, lawyers, and prosecutors, and the Supreme People's Court issued a circular calling for standardized selection processes and improved professional competence at all levels of the judiciary.(245) It is too early, however, to assess whether these calls for reform and efforts to improve the competence of China's judges will lead to beneficial changes in the judicial process, either within the realm of commercial law or more broadly.

U.S. Government Activities

The United States Trade Representative (USTR) coordinates the Administration's monitoring efforts through chairmanship of the interagency Trade Policy Staff Committee (TPSC) subcommittee on China WTO compliance, which consists of officials from those federal agencies most concerned with WTO commitments, including the Departments of Commerce, State, Agriculture, Labor, and Treasury and the U.S. Patent and Trademark Office. In China, the State Department, the International Trade Administration, the Foreign Agricultural Service, and U.S. Customs monitor compliance. The U.S.-China Relations Act of 2000 requires the USTR to submit an annual report on China's compliance with its WTO commitments, including the findings of the Department of Commerce's compliance monitoring program. The first report is due by December 11, 2002.(246) Moreover, the Senate Finance and House Ways and Means Committees have tasked the General Accounting Office (GAO) with a four-year project to examine China-WTO implementation issues.

In China, U.S. government agencies provide limited technical assistance for WTO implementation and compliance, but there is little coordination among them. U.S. diplomats have held training courses for Chinese government officials at various levels. The Department of Commerce has conducted a number of seminars throughout China, mostly on industry-specific topics. U.S. agencies currently conducting programs have little experience in offering technical assistance. Moreover, agencies carry out existing programs without funds appropriated for this specific purpose, and the programs are not designed to address China's WTO commitments relating to rule of law development. The U.S.-China Relations Act of 2000 authorizes the Department of Commerce to establish a commercial rule of law and technical assistance program related to commercial activities in China.(247) If carried out, this program could help China meet its WTO rule of law commitments. However, the Congress has not appropriated funds for this specific purpose, and, consequently, the Department of Commerce has not established a comprehensive commercial rule of law program in China.

Foreign Government Assistance

In contrast to the United States, other governments, including the European Union, individual European states, Australia, Canada, and Japan, have committed to provide significant technical assistance to China on WTO compliance and the development of the rule of law. The European Union has been the largest donor for training programs. Its WTO-related projects, reportedly estimated at about $100 million, are being phased in over a number of years as part of the EU's larger strategic plan for relations with China.(248) Commission hearing witnesses have cautioned that the United States should not cede to other governments the opportunity to prioritize the content of technical assistance to China, as doing so may result in a Chinese legal system that favors other countries' interests to the detriment of the United States.(249)

It is too soon to determine whether China will adhere to its commercial rule of law commitments, given the sweeping structural changes required. China's capacity to implement the changes necessary for WTO compliance continues to be debated vigorously in China, the United States, and elsewhere. Some doubt whether MOFTEC is capable of coaxing the other ministries into action.(250) Analysts also question Beijing's ability to force provincial and local governments to change their policies and practices after having enjoyed significant autonomy for so long, despite the strong interest to comply among China's most senior leaders.(251)

(Illustrative legal provisions include: Accession of the People's Republic of China to the World Trade Organization, Decision and Protocol - 2001; Marrakesh Agreement Establishing the World Trade Organization - 1994, Annex 1B (General Agreement on Trade in Services), Annex 1C (Agreement on Trade-Related Aspects of Intellectual Property Rights); General Agreement on Tariffs and Trade - 1947)

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The page was last modified on June 3, 2004